1990 (2) TMI 248 - HC - Companies Law

Summary

Issues:
1. Dispute over payment for services rendered by Era Furnishers to Indo Continental Hotels and Resorts Ltd.
2. Allegation of inability to pay debts by Indo Continental Hotels and Resorts Ltd.
3. Legal grounds for winding up petition under section 433(e) of the Companies Act, 1956.

Analysis:
1. The case involved a dispute between Era Furnishers and Indo Continental Hotels and Resorts Ltd. regarding payment for services rendered by Era Furnishers for furnishing and interior decoration work at Hotel Mansingh. Era Furnishers claimed a balance payment of Rs. 50,861, which the respondent-company acknowledged but had not paid. The respondent raised issues of incomplete work and defects in the project, leading to a disagreement over the final payment amount.

2. Indo Continental Hotels and Resorts Ltd. contested the winding-up petition by Era Furnishers, claiming financial stability and disputing the debt amount. The respondent argued that the company was financially sound, with reserves for expansion projects, and the outstanding amount was in dispute due to alleged incomplete work and defects in the project. The respondent's financial status was supported by the latest balance-sheet submitted to the court.

3. The court analyzed the legal grounds for a winding-up petition under section 433(e) of the Companies Act, 1956. It was established that a company may be deemed unable to pay its debts if it fails to pay a sum exceeding Rs. 500 within three weeks of a creditor's demand. Era Furnishers had issued a statutory notice demanding payment, which the respondent had not fulfilled. However, the court emphasized that a winding-up petition should not substitute other legal remedies, and a genuine dispute over the debt amount could prevent the court from making a winding-up order.

4. The court reviewed the evidence presented, including correspondence between the parties and the completion of work by Era Furnishers. Despite some pending defects, the respondent had made partial payments and acknowledged the balance due. The court found that the respondent's dispute over the outstanding amount was reasonable and bona fide, indicating that the winding-up petition was an abuse of the legal process. Consequently, the court dismissed the company petition, stating that Era Furnishers could pursue a civil suit for recovery if desired.